Post-Mortem: 2020 Tax Planning Frenzy

Preface: “Plans are nothing; planning is everything.” ― Dwight D. Eisenhower, former U.S. President
Post-Mortem: 2020 Tax Planning Frenzy

Credit: Don Feldman

The election of Joe Biden on November 2, 2020 created one of the great tax-planning stampedes of most practitioners’ lifetimes. Biden had run on a platform of increasing capital gains rates from 20% to 40% on gains more than $1 million. He also planned to reduce the estate and gift tax exclusion from the current level of $11 million+ per person to $3.5 million. In November 2020, control of the Senate was still uncertain due to the runoffs for the two Georgia seats scheduled for January 5, 2021. But Chuck Schumer, the Democratic Senate leader famously promised “Now we take Georgia, then we change the World.” It was thought that any 2021 tax bill would make changes retroactive to January 1, 2021.


$1 million sounds like a lot of capital gains (and it is). For business owners selling their businesses that they had spent a lifetime building, a gain of three or four million is not unusual. Taking a 40% federal tax slice would mean that a large amount of that lifetime of effort would go up in smoke. I personally was working with two such businesses for which a Letter of Intent had been signed in 2020 but were not going to close until 2021.

Similarly, the reduction in the per person estate and gift tax exclusion (currently $11.7 million) to $3.5 million would overnight create a multi-million-dollar tax liability. Many wealthy families who thought they were immune from estate and gift tax were affected.

The demand for tax planning to avert these results was overwhelming. An army of tax lawyers and accountants mustered their troops and marched into battle.

What Actions Were Taken?

Irrevocable Trust

To avert the capital gains hit on the sale of businesses (and certain other assets) that were to close in 2021, tax planners deployed an irrevocable trust by which the business was sold to the trust in 2020 to lock in the gains in 2020 at the current 20% tax rate. When the business was then sold to a third-party buyer in 2021, no or little gain would be recognized because the 2020 sale to the trust had increased the basis of the assets to fair market value. The downside to this technique was that the tax had to be paid a year in advance – April 2021 rather than April 2022 – but this seemed like a small price to pay to save 20% of the gain above $1 million.

Spousal Lifetime Access Trust (SLAT)

A common planning technique to use the $11.7 million 2020 gift tax exclusion is a so-called Spousal Lifetime Access Trust (SLAT). Again, the idea was to make a large gift to an irrevocable trust of which the donor’s spouse was the beneficiary during his/her lifetime with children or grandchildren as remainder beneficiaries.   Reciprocal SLATs could be used so that each spouse could give to the other up to about $11 million, thereby using the bulk of each spouse’s lifetime gift exclusion. By doing this, the spouse(s) could exclude the gifted amount from his/her estate. In addition, the spouse would receive some benefit from the assets because the non-donor spouse could receive lifetime distributions from the trust.

How Does This Planning Look A Year Later?

Well, the Democrats did take Georgia, but they have not (yet) changed the world of taxes. The plan to raise capital gain and estate/gift taxes seems to have foundered on the rock of the Democrats too-narrow majorities in Congress.  At this writing, the chances for significant capital gains and estate/gift tax increases seem remote.

So, in retrospect, what was the cost of these planning efforts (apart from the not insignificant legal and accounting fees)? In the case of the early sale of business assets to an irrevocable trust, the only tangible cost was paying the capital gains tax a year early. The time value of money is something, but in the super low-interest rate environment of late 2020, this amounted to no more than 2%-3% of the tax. Would you be willing to pay 2% to avoid a possible 20% tax hit?

In the case of SLATs, there is no tangible cost (again apart from professional fees), but the result is a more complex financial situation, with the need for annual trust tax returns for the newly created irrevocable trust(s). However, there is a possible silver lining. The current estate/gift tax exclusion regime is scheduled to expire after 2025. At which point the exclusion will revert to $5 million adjusted for inflation. So, it is quite possible this type of SLAT planning will still be helpful, even if done a few years earlier than necessary.


For some of us, it seems incredible that after the tax planning tsunami of late 2020, no significant tax changes have yet come to pass.  But it serves to remind us that no one’s crystal ball is perfect. When engaging in this sort of planning you must consider the possible costs as well as the upside.

Don Feldman is the founder of Keystone Business Transitions, LLC, a Lancaster, PA firm devoted to helping business owners smoothly exit their companies. He has been a CPA for over 25 years and a valuation professional for 20 years. For the last 15 years, Don’s practice has focused on succession and exit planning, including transfers of business interests. 




 2021 Taxpayer Planning: Unreimbursed Expenses Deduction for Educators

Preface: A great teacher can teach Calculus with a paper clip and literature in an empty field. Technology is just another tool, not a destination.’ –Unknown

2021 Taxpayer Planning: Unreimbursed Expenses Deduction for Educators

Now that autumn is here, and school has started, many teachers are dipping into their own pockets to buy classroom supplies. Doing this throughout the year can add up fast. Fortunately, eligible educators may be able to defray qualified expenses they pay during the year when they file their tax return.

Educators who work in schools may qualify to deduct up to $250 of unreimbursed expenses. That amount goes up to $500 if two qualified educators are married and file a joint return. However, neither spouse can deduct more than $250 of his or her qualified expenses when they file.

Taxpayers qualify for this deduction if they:

        • Teach any grade from kindergarten through twelfth grade.
        • Are a teacher, instructor, counselor, principal or aide.
        • Work at least 900 hours during the school year.
        • Work in a school that provides elementary or secondary education.

The Consolidated Appropriations Act, 2021 expands the above-the-line deduction for classroom expenses to include personal protective equipment, disinfectant, and other supplies used for the prevention of the spread of COVID–19 paid or incurred after March 12, 2020.

Qualified expenses include:

        • Professional development courses,
        • Books,
        • Supplies,
        • Computer equipment including related software and services,
        • Supplementary materials,
        • Athletic supplies only for health and physical education,
        • Face coverings,
        • Disinfectant for use against COVID-19,
        • Hand soap,
        • Hand sanitizer,
        • Gloves,
        • Tape, paint, or chalk used to guide social distancing,
        • Protective physical barriers (such as clear plexiglass),
        • Air purifiers,

Eligible taxpayers can claim this deduction when they file their taxes. We encourage teachers to consider tracking their qualified expenses incurred throughout the year.

If you have any questions related to the deduction for educator expenses, please call our office.

American Rescue Plan: Employee Retention Credit Extended

Preface: It’s [The American Rescue Plan] not just to meet the moral obligation to treat our fellow Americans with the dignity and respect they deserve; this is an economic imperative.  A growing economic consensus that we must act decisively and boldly to grow the economy for all Americans, not just for tomorrow, but in the future. —Remarks from President Biden

American Rescue Plan: Employee Retention Credit Extended

The American Rescue Plan Act of 2021 modifies the employee retention credit first created under the Coronavirus Aid, Relief, and Economic Security (CARES) Act then extended and expanded under the Consolidated Appropriations Act, 2021. This highly popular employment tax credit is designed to encourage businesses to keep workers on their payroll and support small businesses and nonprofits through the Coronavirus economic emergency.

Eligible employers may claim the credit against employment taxes equal to a percentage of qualified wages paid to employees beginning in 2020. The American Rescue Plan Act of 2021 modifies the rules for the employee retention credit for calendar quarters beginning after June 30, 2021 as follows:

Eligible Employers

An eligible employer is defined as:

        • An employer whose trade or business is fully or partially suspended during the calendar quarter due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to the coronavirus disease (COVID-19);
        • An employer that experiences at minimum a 20% decline in gross receipts for the calendar quarter compared to the same quarter in 2019; or
        • A recovery startup business.

If the employer was not in existence at the beginning of the same calendar quarter in 2019, then the employer may use the same calendar quarter in 2020. Employers may also elect to determine if they meet the gross receipts test using the immediately preceding calendar quarter compared to the corresponding calendar quarter in 2019.

A “recovery startup business” means any employer that began carrying on any trade or business after February 15, 2020 with average annual gross receipts of $1,000,000 or less, and is otherwise not an eligible employer described in items 1 or 2 above.

Qualified Wages

Qualified wages are based on the business’s average number of full-time employees in 2019 (or 2020, if not in existence in 2019).

Small employers, those that had 500 or fewer employees, may receive the credit for wages paid to employees whether or not they are providing services to the employer.

Large employers, those that had more than 500 employees, may only receive the credit for wages paid to employees for time the employees are not providing services to the employer.

Severely financially distressed employers, those that are experiencing a minimum 90% decline in gross receipts for the calendar quarter compared to the same quarter in 2019, may receive the credit for wages paid to employees during any calendar quarter.

Credit Amount

In general, the amount of the credit is 70% of qualified wages paid to an employee up to $10,000 per quarter. Recovery startup businesses may claim a maximum credit of no more than $50,000 per quarter. Qualified wages may include amounts paid to provide and maintain a group health plan that are excluded from employees’ gross income.

Employers must report their qualified wages on their federal employment tax returns, usually Form 941, Employer’s Quarterly Federal Tax Return. They can reduce their required deposits of payroll taxes withheld from employees’ wages by the amount of the credit.

Small employers, those that had 500 or fewer employees, may elect for any calendar quarter to receive an advance payment of the credit not to exceed 70 percent of the average quarterly wages paid by the employer in calendar year 2019.

No Double Benefit

There are limitations when considering an eligible employer’s ability to claim the employee retention credit. A double tax benefit is not allowed. Other credits that impact the employee retention credit include, but are not limited to, the following:

        • wages that are paid for with forgiven Payroll Protection Program (PPP) proceeds cannot qualify for the employee retention credit;
        • qualifying wages for this credit cannot include wages for which the employer received a tax credit for paid sick and family leave; and
        • employees are not counted for this credit if the employer is allowed a work opportunity tax credit.

Because of the enhancements and expansion of the employee retention credit, your business may now have an opportunity to take the advantage of this tax benefit. If you have questions on American Rescue Plan Act of 2021 and the employee retention credit please call our office.

Data Migration for Quickbooks Desktop to Online

Data Migration for Quickbooks Desktop to Online

Credit: Matthew P. Glick

Quickbooks Online is gaining popularity quickly due to the advantages of an online platform vs. a local desktop solution in ease of access and data security. If you are thinking of migrating to Quickbooks online from the Desktop version, here are a couple items that you will want to keep in mind.

  1. Ensure Quickbooks Online is able to serve your needs

While it may be understandable to assume that the desktop and online versions of Quickbooks are virtually the same, this is not quite the case. They are two completely separate products, albeit, developed by the same company, ensuring a certain level of similarity. They are certainly similar, but not so similar that they can be used interchangeably.

It is especially important to note that Intuit has yet to develop an online solution comparable to Quickbooks Desktop Enterprise. If you are a current Enterprise user, chances are that Quickbooks online would not be a wise decision. Quickbooks has some excellent help articles explaining in detail some specific things to be aware of when switching from the desktop version of Quickbooks, to the online version. One of the easiest differences to spot is in advanced inventory management, and advanced reporting. Some features simply do not exist in the online version, and others require a Pro subscription or higher. Be sure that none of the features that are missing in Quickbooks online are critical to your company before deciding to make the switch.

Another point to be aware of is the fact that there are some hard limits that may impact your ability to use the data migration tool provided by Intuit. The limit is set on the number of targets, or total line items for all transactions in your file. To find out how many targets your file contains, press the F2 key with your file open. Look for the line that says “Total Targets” and verify that this number is not over 350,000. If it is over that number, data migration will have to be a custom/manual process, and will require a reasonable time investment.

  1. Be aware of how the differences between the versions will affect the data transfer

Due to the differences in features and terminology from Quickbooks Desktop to Online, some data will be transferred in a way that will cause the financial statements to match, but may not necessarily transfer the way they were recorded. Custom fields especially will typically have to be added manually after the transfer is complete. Another example of data transferring in a way that may not be intended is transactions importing as journal entries, rather than checks if there was a complication in the import process. Intuit publishes an extensive list of items that may complicate a transfer, so be sure to review that to avoid any unwanted complications.

Keep in mind that this article applies only if you use the Quickbooks data migration tool. Another option is to hire a specialist to ensure all of the data is transferred error-free, and in an acceptable format. However, this will most likely be a much costlier and time-consuming process, if worry-free. Shopping for these services is beyond the scope of this article, however.

  1. Initiate the transfer

Intuit has a step-by-step guide published to walk you through the process of performing the data migration using their tool to complete the transfer. The amount of time it will take to complete the transfer will depend largely on the amount of data being transferred, and the amount of extra details that will need to be added manually afterward. It is best to block out your schedule for an entire day when starting a project like this to ensure minimal down-time and availability to address concerns as they arise. After the transfer is successful, you will want to pull reports and compare them with the numbers from the desktop file to ensure a successful transfer. It is important that you do this before you begin recording any activity in the new system. Ensure account balances from the balance sheet match, as well as Profit & Loss accounts for recent accounting periods.


In conclusion, making the switch from Quickbooks Desktop to Quickbooks Online can be wise move if your company is new and/or has a fairly straightforward accounting approach. For companies bringing over a larger quantity of data, or ones that use custom fields, or other atypical or nonconventional approaches to their bookkeeping process may face some challenges in the data migration process, and are advised to consult with a QuickBooks professional before forging ahead.


Why You Should Consider Converting Your Business to an LLC

Why You Should Consider Converting Your Business to an LLC

By Nevin Beiler, Attorney

A large part of my law practice consists of forming and restructuring business entities for business owners. People often ask me what would be the best form of entity for their business. Although there are exceptions, in the vast majority of cases the answer to that question is a Limited Liability Company (“LLC”). If you have a business that is located in Pennsylvania and is structured as something other than an LLC, you may want to at least consider restructuring it. This is especially true if your business is a sole proprietorship or a general partnership.

In this article I will explain the main benefits of being structured as an LLC. But first, a quick story about some clients I assisted in restructuring their business from a general partnership to an LLC. As always, I have changed the names and some details in order to protect the confidentiality of my clients.

A father and his three sons came to my office one day to discuss restructuring their construction business. For the past 15 years they had been operating as a general partnership. At the time of the meeting, the father owned 90% of the business, his three sons owned 2% each, and two other workers owned 2% each.

In the past, the sons and two other workers had been listed as partners mainly to avoid payroll taxes. The father wanted to increase his son’s percentage of ownership and give them more management responsibilities. He was also considering putting the other two workers on payroll because he had heard that the strategy of having workers be low-percentage partners to avoid payroll taxes was causing some partnerships to incur fines and penalties in Pennsylvania Unemployment Tax audits (he was right about that).

The father had also heard somewhere that he should consider changing from being a general partnership to an LLC partnership, but he wasn’t totally sure why. I explained that one reason he should convert to an LLC partnership was to limit the personal liability of the partners for lawsuits against the business. He seemed to have a “lightbulb moment” when I said that, and said, “do you mean that if the business is sued all the money in my sons’ personal bank accounts would be at risk”? When I answered “yes” and also said that the personal assets of his other workers were also at risk, he become very concerned. His sons had worked hard for the business since their teen years, and had each developed sizable savings accounts. He was also uncomfortable with the thought that his workers, who functioned essentially like employees, were sharing in the risk of the business due to the fact that they were 2% general partners.

The realization that the way his business was structured was putting his sons’ savings and his employees at risk provided a substantial motivation for the father to change the general partnership to an LLC partnership. As part of that change, he put the other workers on payroll and increased his son’s percentages of ownership in the business. He also increased the liability insurance of the business. The good news for them was that converting a general partnership to an LLC partnership is fairly simply in Pennsylvania. The bad news was that the conversion and the limited liability it brought would only apply to the future. Any potential lawsuits for activities prior to the date of the conversion to an LLC would still put the partner’s personal assets at risk.

The Benefits of a Limited Liability Company

The above story illustrates one of the main benefits that an LLC has over sole proprietorships, general partnerships, and general partners in limited partnerships, which is that partners in an LLC (typically called “members”) do not have personal liability for lawsuits against the LLC. The members of an LLC also generally do not have personal liability for the debts or other liabilities of an LLC, unless they sign a personal guarantee for the liability. They are at risk of losing the value of their share of the business if an accident or lawsuit is not covered by the business’s insurance policy, but their personal assets would be protected.

On the other hand, the personal assets of all the partners in a general partnership (including a 1% partner) can be fully at risk for the liabilities of the partnership (including loans, audits assessments, lawsuits, etc.), regardless of which general partner of the partnership incurred the liability or caused the lawsuit. The same is true of sole proprietors, who are generally fully responsible for both their own actions, and the actions of their employees during the workday. Most businesses should and do carry liability insurance that will cover unexpected accidents and lawsuits. However, not everything can be covered by insurance, and sometimes insurance coverage limits are lower than a lawsuit amount, so having the extra protection of the LLC structure can be a big help in protecting the owners of the business when things go majorly wrong.

Another benefit of the LLC structure is its administrative and structural simplicity and flexibility. Unlike corporations (which were more common before LLCs became available), LLCs do not require many formalities like annual meetings, electing directors, director meetings, etc. An LLC can require certain formalities in its Operating Agreement, but very few formalities are required by law for LLCs.

Similar to a general partnership, an LLC can be structured as “member managed” (meaning it is managed by all its members) or “manager managed” (meaning the members elect one or more managers from among or outside the membership to manage the LLC). The provisions regarding voting, compensation, profit sharing, buy/sell agreements, etc., are all very flexible in an LLC and can be customized in the LLC’s Operating Agreement to suit the needs of the members.

LLC’s are also very flexible when it comes to how they are taxed. A single member LLC is normally taxed as a disregarded entity, meaning that the income and expenses of the LLC are reported on the appropriate schedule of the owner’s Form 1040 (e.g. on Schedule C). However, a single member LLC can elect to be taxed as an S Corp or C Corp if that would be advantageous to its owners (not common for those exempt from FICA taxes).

A partnership LLC (an LLC with more than one member), like a general partnership, is normally taxed as a pass-through entity, meaning that the partnership entity files an information tax return but all income taxes are paid by the individual members. However, the members can choose to have the partnership be taxed as an S Corp or C Corp if that would be advantageous to the members. The flexibility to choose between the full range of tax elections could become an advantage over corporations, which are limited to C Corp and S Corp tax options. With the Qualified Business Income Deduction (new for the 2018 tax year), more small corporations may want to consider whether changing their structure to an LLC would be advantageous. Doing so would allow them to be taxed as a disregarded entity (one owner) or partnership (multiple owners) and potentially maximize the QBI Deduction.

Another advantage, though perhaps smaller than the ones discussed above, is that registering a business as an LLC provides more protection for the registered business name than filing a fictitious name registration (as is required for sole proprietorships and general partnerships). Many business owners are surprised when I tell them this, but the reality is that filing a fictitious name registration does not result in exclusive use of that name in Pennsylvania (and probably many other states). If only a fictitious name registration is filed in Pennsylvania, another business owner could come along and register the same name as an LLC or Corporation (or other registered entity). But once a name is registered as an LLC (or other registered entity) in Pennsylvania, nobody can come along and register a business under that same name in Pennsylvania. (Businesses that want exclusive use of a name in multiple states may want to consider registering a Trademark for their name.)

Starting an LLC or Converting to an LLC

Starting an LLC in Pennsylvania is fairly simply. New LLCs in Pennsylvania do not require legal advertising (which is required for fictitious names and new corporations), so that helps to keep the cost down. Also, Pennsylvania has a conversion process by which a general partnership can convert to an LLC partnership without re-titling assets or getting a new EIN number. This greatly simplifies the administrative hassle of these conversions.

An existing sole proprietorship business will generally need a new EIN in order to change to a single member LLC. This means a little more administrative burden (usually involving a new bank account, new payroll accounts if there are employees, new PA Dept. of Revenue accounts, and transferring business assets to the new LLC), but it is very manageable for most businesses.

When starting a new business or changing your business structure, you should seek good legal advice and tax advice. Setting up a good structure for your business will minimize complications down the road, and can position you for the best legal protection and tax savings.

This article was originally printed in the Plain Communities Business Exchange.

Nevin Beiler is an attorney licensed to practice law in Pennsylvania (no other states). He practices primarily in the areas of wills & trusts, settling estates, and business formations & agreements. Nevin and his wife Nancy are part of the conservative Mennonite community, and Nevin previously served as the in-house accountant for Anabaptist Financial before leaving to become an attorney. Nevin’s office is located at 105 S Hoover Ave,  New Holland, PA 17557, and he can be contacted by email at or by phone at 717-287-1688. More information can be found at

Disclaimer: This article is general in nature and is not intended to provide specific legal or tax advice. Please contact Nevin or another attorney licensed in your state to discuss your specific legal questions.